What will Drive a $7 Trillion Economy
India has set its sights on a USD 7 trillion economy by 2030, requiring a strategic focus on financial and banking sector reforms. This ambitious goal hinges on several key drivers, including technological advancements, financial sector innovation, integration of domestic markets, and fostering inclusive growth.
The World Bank's projections for India's economy in 2024 indicate a positive outlook, with a projected growth rate of 7.5 percent. This revision, up by 1.2 percent from earlier estimates, suggests a more optimistic view of India's economic performance for the specified period.
The anticipated growth is attributed to the resilience observed in both the services and industrial sectors. However, the Bank also foresees a moderation in growth to 6.6 percent over the medium term. This could be influenced by various factors such as global economic conditions, domestic policy changes, and structural reforms.
India's medium-term growth outlook indicates a shift from the robust expansion of 7.5 percent GDP growth in FY24 to a moderated pace of 6.6 percent in FY25. This deceleration is primarily attributed to a slowdown in investment activities, which had surged in the previous year.
Looking ahead, fiscal deficit and government debt are anticipated to decline over the medium term. This positive trend is supported by robust output growth and concerted efforts by the central government towards fiscal consolidation.
India's recent economic performance showcases resilience and momentum. Economic activity in Q4 of 2023 surpassed expectations, registering an impressive 8.4 percent growth compared to the previous year. Increased investment and government consumption were key drivers behind this growth. Additionally, India's composite purchasing managers index (PMI) stood well above the global average, indicating expansionary trends.
Inflation has remained within the Reserve Bank of India's target range, maintaining accommodative financial conditions. Notably, domestic credit issuance to the commercial sector has seen a significant uptick, growing by 14 percent year-on-year in 2023. Improvements in financial soundness indicators and an 8 percent increase in foreign reserves further bolster confidence.
India's demographic dividend presents a unique opportunity for economic growth, with the country set to add a substantial number of people to its working-age population over the next decade. The burgeoning middle class, now estimated at 371 million, is expected to continue driving purchasing power domestically.
Policy initiatives have played a pivotal role in India's transformation. The implementation of the JAM Trinity (Jan Dhan account, Aadhaar, Mobile) has streamlined subsidy delivery and financial inclusion. Initiatives like the Jal Jeevan Mission aim to provide clean water to every household, while the Production Linked Incentive scheme incentivizes investments and job creation in manufacturing.
India's progress in energy access and renewable targets underscores its commitment to sustainable development. Achieving nearly 100 percent household access to electricity and exceeding renewable energy targets ahead of schedule demonstrate India's leadership in energy transition.
The digital revolution is reshaping India's economy and governance. Government initiatives like UMANG and the Ayushman Bharat Digital Mission aim to enhance service delivery and healthcare infrastructure. The Unified Payments Interface (UPI) has revolutionized digital payments, while the Open Network for Digital Commerce (ONDC) seeks to transform e-commerce by fostering a network-centric model.
Financialization is gaining momentum, driven by formalization in banking, compliance enhancements through digital payments, and increased participation in equity markets. As per capita GDP approaches the USD 4,000 mark, the financialization of assets is poised to double, reflecting growing investor confidence and wealth accumulation.
Conclution:
India's growth narrative stands at a pivotal juncture, propelled by its distinctive advantages among major economies: a burgeoning middle class and a youthful workforce. Moreover, bolstered by these dynamics, the country's substantial informal sector is swiftly transitioning into the formal economy, fueling the rise of financial assets. These profound structural transformations pave the way for India to ascend to the ranks of the world's fourth-largest economy by the decade's end.
